Hot SRI investment opportunities

Posted on by Paul Ellis

What are some of the hottest trends in sustainable investing? After attending the annual conference for US SIF, the Forum for Sustainable and Responsible Investment, in Chicago in May, I’m excited to share a few investment strategies that I think advisors should tune into. These investment opportunities are exciting to clients and help diversify allocation choices across style boxes.

Giving the Next Generation of Farmers a Chance

The panel Investment Opportunities in Sustainable Agriculture was standing room only. As speakers walked us through how young farmers could sign on as farm managers with the option to become owners after 10 years, you could feel the enthusiasm building in the room. The business structures discussed for investing in this space include private equity, public companies, and direct farmland for accredited investors. The common themes across these approaches include sustainable crop and livestock production methods, family farm management, and rising property values for land in production for five years or more.

This new crop of farmers want to work the land and raise their families on a farm—something that is increasingly difficult given the continued concentration in agricultural production: 63% of agricultural sales in the U.S. came from 9% of farms (USDA, 2007 Census of Agriculture). And, 60% of the farmers are 55-years-old or older (Bureau of Labor Statistics).

You can learn more about these investment opportunities at Organic Valley, New island Capital, Iroquois Valley Farms, and Farmland LP.

TIAA/CREF and Barclays Team Up

In the Emergence of Fixed Income in Sustainable Investing breakout panel, TIAA/CREF’s Managing Director was very clear that demand from plan participants for sustainable fixed income investment choices is the driving force behind the partnership with Barclays. Three major sectors of the bond market – Corporates, Municipals and Government/Agency bonds – are being used in ESG/Impact investing strategies as SRI assets surge into the fixed income arena.

According to US SIF’s 2012 Trends Report, TIAA/CREF is among the 450 Institutional Investors that now incorporate ESG criteria in their investment selection process. This group includes many public and private pension and retirement plans. So find out if your clients have qualified retirement plans that include SRI options.

Real Estate/Real Assets

For institutional investors, the Green Real Assets – Public Initiatives and Public Markets panel highlighted that tenant demand for energy efficiency is driving real estate development. The Chief Sustainability Officer, City of Chicago, spoke passionately about how investors can play a role in providing jobs and addressing water, transportation and energy needs in local communities. Other panel members from the US Dept. of Energy and the MacArthur Foundation stressed the importance of public/private partnerships in expanding the market for investment products in green real assets.

In my experience as an advisor and consultant, awareness of and engagement with clients around these trends supports the growth of AUM and the equity value of advisor practices. Clients like to invest with their values and diversify to reduce risk. By keeping up with the SRI trends, you can distinguish yourself from the competition.

You should consider the investment objectives, risks, charges, and expenses of an investment carefully before investing.

The “As Good As” SRI Funds

Posted on by Paul Ellis

If you’re an advisor new to SRI, you probably struggle to fill the equity and fixed income style boxes. One of the most common complaints I hear is that there are not enough competitive funds to properly diversify a portfolio for the client who wants most of their assets invested in SRI. To support advisors I work with to overcome this hurdle, I’ve developed a list of SRI funds that I call my “As Good As” list.

Every calendar quarter I report on the performance of a list of 15 – 20 actively managed and ETF index mutual funds that use some combination of ESG criteria in the securities selection process. Several of the funds have been available to investors for over 20 years. I track the performance of all the funds against a Lipper index for a minimum of least three years and up to ten years. In order to stay on my “As Good As” list, funds must have a total return at least equivalent to the index benchmark for the 3 to 10 year tracking period.

What’s the Verdict?

Assuming my calculator and portfolio allocation software are working, the “As Good As” list provides style box diversification as well as competitive performance. 80% of the funds are ranked 4 or 5 Lipper Leaders for total return. Two-thirds of them have outperformed the index benchmark in two of the past three years, and a majority of them have outperformed the benchmark for the three year period ending March 31, 2013.

In addition, the stock funds cover the equity style boxes in the Morningstar Snapshot portfolio illustration in a way that meets modern portfolio theory and fiduciary standards for market volatility and category specific risk. The fixed income style box coverage is less complete, but well positioned against interest rate volatility.

As an advisor, you can create your own list. Start your research with the mutual fund list at USSIF’s website: You’ll be surprised at the cross section and number of categories that Bloomberg tracks for USSIF.

You should consider the investment objectives, risks, charges, and expenses of an investment carefully before investing.

Do you know if your clients are interested in SRI?

Posted on by Paul Ellis

One of the biggest surprises I had as an advisor was how many of my clients were interested in SRI. But it shouldn’t have been! After all, I had been working with some of these clients for years when I decided to make SRI a specialty within my practice. I should have been more aware of how they felt about things like the environment, energy efficiency, and human rights abuses in overseas factory conditions.

In fact, I didn’t figure out that my own brothers were becoming example of sustainable business practices at the same time that I was shifting my focus to SRI. They never made a big deal out having 20,000 pine trees in the ground at the family farm, with a plan to harvest 1,000 per year and replant 1,000 per year starting in two years. And I’d been thinking I was the one in the family focused on sustainable business practices!

Harvesting Sinker Cypress

I recently returned from a visit to the farm, which is near New Orleans in Tangipahoa Parish. Farming pine trees, like SRI investing, begins with the long term perspective. Harvesting Sinker Cypress trees from the river bottom nearby involves, among other things, gulag-like work conditions according to my nephews. To my brothers it’s about using revenue producing available assets while you let the long-term growth assets surround you and sequester carbon for 20 years. For me, turning Sinker Cypress logs into beautiful tables, chairs and mirror frames is a great example of profitably recycling naturally preserved materials. It’s what we in the SRI field call a win-win situation—except for my nephews’ lower backs, of course.

The experience got me thinking about now many different ways there are to be sustainable in our economy, and how many people really want to pitch in and do their part for themselves and their families and communities. Those of us in the SRI industry sometimes lose sight of the way people and communities all over the country are creating the green and sustainable revolution right under our noses.

A quick review of my own community and clients reveals people who are driving hybrids, engaged in local sourcing of farm products, installing solar panels, riding bikes, reusing their grocery bag when they shop, and reviewing local water drainage and waste water systems to reduce runoff. And that’s just off the top of my head.

So advisors, if you’re not already having the SRI conversation with your clients, now is the time to start. Many of them will want to know that promoting sustainability doesn’t stop at the supermarket or the recycling center.

You should consider the investment objectives, risks, charges, and expenses of an investment carefully before investing.

So what do Munich Re and Swiss Re know that we don’t? Part 2

Posted on by Paul Ellis

“If climate change undermines the financial viability of the insurance industry, it will have a devastating impact on the economy, as well.” – CERES report

According to the report by CERES, a nonprofit organization of investors, companies and public interest groups advocating for sustainability leadership, most of the property and casualty companies have strategies to deal with climate variability (the annual and decadal variance inherent to the global climate system). However, climate change is considered “an emergent risk, which will materialize in a future uncertain manner, rather than a factor that already affects clients through hazards such as hurricanes and other extreme weather risks.”1

This lack of planning for climate-related risk is not limited to property and casualty companies. Every segment of the insurance industry is exposed because the entire financial structure of the industry is built on publicly traded financial markets and all the companies they own within those markets.

Just How Exposed Are We?

On October 10, 2012, Munich Re issued a report saying that weather-related losses in North America had quintupled in the past three decades. From 1980 through 2011, weather disasters caused losses totaling $1.06 trillion.2

Prescient indeed, since a few weeks later Hurricane Sandy hit, with a $50 billion price tag for the East Coast. And the $65 billion drought related losses for farmers in 2012 have recently shown the breadth of vulnerability across the country to catastrophic weather related events.

Some corporations and insurance companies are partnering to understand and reduce the risks of climate change to their profitability and to the future of the communities where they provide business services. In 2005 Entergy, the utility company serving 2.8 million customers in four states along the Gulf of Mexico, suffered $2 billion in repair and replacement losses in hurricanes Katrina and Rita.

In 2010 Entergy and Swiss Re partnered to analyze the opportunities and risks of climate change to Entergy’s assets and the communities it works in. Their sobering findings? The Gulf Coast is vulnerable to cumulative climate risk losses in excess of $350 billion by 2030.3

What Can Insurance Companies Do?

Insurance companies are the risk management foundation of our economic structure. That’s why the CERES report and the sustainable and responsible investment industry recommends that

– insurers treat climate change as a corporate-wide strategic issue, and
– regulators continue to mandate annual public disclosure by insurers on the issue of climate change.

For advisors, keep in mind that insurance companies that include strategic development of policies to deal with climate risk are pursuing greater financial stability in their underwriting process. This has the potential to make them more profitable for their shareholders over the long term.

For now, it seems the Germans are leading the charge!

You should consider the investment objectives, risks, charges, and expenses of an investment carefully before investing.

1 “Insurer Climate Risk Disclosure Survey: 2012 FIndings and Recommendations,” Sharlene Leurig and Dr. Andrew Dlugolecki, CERES.
2 “German Insurers Demand easing of Renewable Investing Regulation,” Responsible Investor, March 21, 2013.
3 “Value Chain Climate Resilience: A Guide to Managing Climate Impacts in Companies and Communities,” PREP, 2012.

So what do Munich Re and Swiss Re know that we don’t? Part 1

Posted on by Paul Ellis

On March 20, 2013, the German Insurance Association, with 474 members including Munich Re, Swiss Re, and Allianz, issued a position paper requesting that government regulators allow them to use a larger percentage of renewal energy resources for investment in their own portfolios. To facilitate the process, they want regulators to reclassify renewable energy into a lower risk category.1

This is groundbreaking news. The German insurance industry is making sure that as the fundamental risk managers for the German economy, they are leading the way for dealing with climate-related risk. And as providers of global insurance-based forms of risk transfer, Munich Re and Swiss Re are leading the way in reducing reliance on fossil fuels and nuclear power. As Swiss Re put it in a new report, “Sustainable energy is key to our livelihoods and future.”2

How are U.S. insurance companies preparing for climate-related risk? Let’s just say they could do better.

In 2012, the U.S. National Association of Insurance Commissioners (NAIC) required insurers in California, New York, and Washington State that write in excess of $300 million in direct written premiums to disclose their climate-related risks. Because most large insurance companies do business in at least one of these states, the survey provides a snapshot of how the industry is dealing with climate change.

CERES, a nonprofit organization advocating for sustainability leadership, analyzed the survey and summarized the findings in a report clearly showing that the insurance industry as a whole is woefully unprepared to deal with climate-related risk.

Of the 184 insurance companies required to respond to the NAIC survey, only 23 have developed comprehensive climate change strategies. And out of these 23 companies, 13 are foreign owned.3

What are the other 161 companies doing? In Part 2 I’ll discuss the response of most insurance companies and why this could be a serious problem for investors.

You should consider the investment objectives, risks, charges, and expenses of an investment carefully before investing.

1 “German Insurers Demand easing of Renewable Investing Regulation,” Responsible Investor, March 21, 2013.
2 “WEF 2013: Powering a Clean Energy Future” February 2013,
3 “Insurer Climate Risk Disclosure Survey: 2012 Findings and Recommendations,” Sharlene Leurig and Dr. Andrew Dlugolecki, CERES.

Gucci and the Pythons: Partners in Sustainability

Posted on by Paul Ellis

Francois-Henri Pinault is the CEO of PPR, corporate parent to some of fashion’s best-known brands. So why has the guy who sells Gucci, Alexander McQueen, and Stella McCartney designs to the rich and famous set up PPR Home to oversee a wide range of ecological and social initiatives, including environmental profit-and-loss statements and sustainable python farming?

The answer is resource scarcity. Not the kind of language anyone reading about the Spring 2013 fashion lines will find in Vogue. Enough of a concern to Pinault, however, that he has been adding a group of middle-class lifestyle brands like Puma, the German sneaker maker, to PPR’s stable of companies. PPR Home’s sustainable planning goes something like this: $6,000 snake skin handbags may have a limited market even with more controlled farm breeding, but middle-class consumers will always need sneakers.

In February’s New York Times Style Magazine, Pinault said that “Sustainable development is a fundamental break that’s going to reshuffle the entire deck. There are companies today that are going to dominate in the future simply because they understand that.”

In addition to Vogue, I suspect Pinault reads articles like “Resource Revolution: Meeting the World’s Energy, Materials, Food and Water Needs, from the McKinsey Global Institute. The article shows that since 2000, commodity price increases have erased a century of steady declines. And, the volatility of these prices is at an all-time high. In one startling statistic, McKinsey projects 3 billion more middle class consumers in the next 20 years. Given supply and demand, the crucial question the articles poses is “. . . whether an era of sustained high resource prices and increased economic, social, and environmental risk is likely to emerge.”*

So as finance professionals we’re looking at two major trends: increasing resource consumption and volatile but rising commodity prices. What does this mean? The smart long-term strategy is to look for companies that have a plan for dealing with resource scarcity in their business model. One way to do this is to choose SRI investment portfolios that have ESG criteria built into the company selection process. Investors can start by visiting the US SIF website ( to review their SRI mutual fund list.

You should consider the investment objectives, risks, charges, and expenses of an investment carefully before investing.

*“Resource Revolution: Meeting the World’s Eenergy, Materials, Food and Water Needs,” McKinsey & Company Quarterly Newsletter, November 2011.

How the global water crisis is driving innovation and investment opportunity

Posted on by Paul Ellis

A Booz Allen study forecasts more than $22 trillion in global water infrastructure spending between 2005 and 2030. That’s more than the predicted $18 trillion in infrastructure investment for electricity and transportation systems.1

The numbers may be startling, but most experts agree that we have a global water crisis. According to the UN, more than 1 billion people lack access to clean water. And by 2025, research from National Geographic predicts an estimated “1.8 billion people will live in areas plagued by water scarcity, with two-thirds of the world’s population living in water-stressed regions as a result of use, growth, and climate change.”2

Take one example in the United States: In late December/early January, $7 billion of goods and services were at risk of not reaching their destinations because of low water levels in the upper Mississippi river.3 A U.S. Government Accountability Office report estimates water shortages for at least 36 states within the next five years.

Innovation and Opportunities

As businesses and governments face the daunting challenges of this growing crisis, investors can become part of the drive for innovation. And with innovation come opportunities to build wealth in companies that lead in strategic planning and market share.

Current opportunities include established companies that are replacing water delivery systems in developed economies and building systems in developing economies. For example, competition for manufacturing pipes, valves, and flow monitoring technologies is heating up. A new Calvert study shows that chemical and industrial companies that were former polluters are now making products used for water distribution and efficiency, water filtration, and water purification.4

Let’s look at how some of the water funds are doing. According to Morningstar, during the past year two mutual funds and two ETF’s have significantly outperformed the Russell Mid/Small Cap Blend stock index:

1 YR ann. return as of 01-31-13

AllianzGI Global Water (AWTAX) 19.65%
Calvert Global Water (CFWAX) 21.60%
Guggenheim S&P Global Water (CGW) 19.68%
PowerShares Water Resources (PHO) 22.05%
Russell Mid/Small Blend Stock Index 11.00%

Predicting year to year performance is uncertain, and an investor should consider the investment objectives, risks, charges, and expenses of an investment carefully before investing. But all the research and data on hand today suggests there should be growth potential for investors in the water sector for a number of years to come.

1 “Lights, Water, Motion.” Excerpted from The Megacommunity Way: Mastering Dynamic Challenges with Cross-Boundary Leadership, published as a strategy+business Reader by Booz Allen Hamilton, July 2007.
2 “A Clean Water Crisis.” National Georgraphic:
3 “How Drought on Mississippi River Impacts You.” National Geographic:
4 “Issue Brief: Water.” Calvert Investments: